EUR/USD remains under pressure ahead of the ECB Meeting on Thursday, where rates are expected to be cut.
Possible technical scenarios:
On the daily chart, the EUR/USD pair has completed the formation of a bearish double top reversal pattern, reaching the support level of 1.0888. From this point, an upward correction to 1.0934 is possible. That being said, if the 1.0888 support does not hold, the next potential downside target would be 1.0801.
Fundamental drivers of volatility:
The euro continues to decline, mainly due to expectations of further monetary policy easing by the ECB. The market anticipates a 25-basis-point rate cut at Thursday's meeting, which would increase the pressure on the euro.
Additionally, the situation is exacerbated by the strengthening US dollar. According to CME Group's FedWatch tool, traders are pricing in a 94% chance of the Fed cutting rates by 25 basis points at its November 7 meeting. This move aims to curb inflation and support the economy. The probability of a larger 50-basis-point cut has decreased to 6% from 27% a month ago, reflecting a cautious approach by the Fed. The dollar's strength is adding further pressure on the euro, which continues to weaken against the greenback.
Intraday technical picture:
As evidenced by the 4H EUR/USD chart, there is a test of the 1.0888 support level, which may persist until the ECB announces its rate decision on Thursday. Increased volatility could lead to revised price targets and provide a clearer indication of the pair's future direction.
The GBP/USD pair is falling amid slowing inflation in the UK, increasing expectations for a rate cut by the Bank of England.
Possible technical scenarios:
The GBP/USD daily chart shows ongoing signs of a head and shoulders reversal pattern, with the price currently at the neckline zone of 1.2989 - 1.3044. From here, the pair could rebound upwards, continuing its recovery toward 1.3141. Alternatively, a breakout below 1.2989 and subsequent consolidation would open the path to support at 1.2846.
Fundamental drivers of volatility:
The pound sterling weakened following Wednesday's data release, which showed a sharper-than-expected slowdown in UK inflation for September. Annual inflation dropped to 1.7%, down from 2.2% in August, marking the lowest rate since April 2021 and below economists' forecast of 1.9%.
The easing of service price pressures to 4.9% year-over-year, alongside stagnant core CPI, has reinforced expectations for a potential rate cut. The Bank of England already reduced its interest rate in August from 5.25% to 5.0%, but has indicated a cautious approach due to the slow decline in wage growth, a key driver of service inflation.
Earlier this year, the pound was buoyed by expectations of a more gradual rate cut compared to the Fed, but this divergence has narrowed, contributing to the weakening of sterling.
Intraday technical picture:
As we can see on the 4H GBP/USD chart, the focus remains on the 1.2989 support level. Whether this support holds will be crucial in determining if the price can recover in the medium term within the reversal pattern or continue to decline without correction.
The USD/JPY is consolidating near last week's highs, driven by a strong dollar and uncertainty surrounding the Fed's monetary policy.
Possible technical scenarios:
The daily chart shows that USD/JPY has consolidated above 148.80, which opens a path for the pair to rise to the next target of 150.17. However, if the support at 148.80 is broken out, the price could retrace to 146.37.
Fundamental drivers of volatility:
The Japanese yen remains under pressure due to ongoing uncertainty regarding the Bank of Japan's monetary policy. Recent remarks from Bank of Japan Governor Kazuo Ueda suggest a shift towards a softer, "dovish" stance, raising doubts about the prospects for a near-term interest rate hike. This uncertainty is further fueled by the Japanese Prime Minister's opposition to further monetary tightening.
Adding to the pressure on the yen is recent economic data indicating weakness in Japan's industrial sector. In response, the Japanese government is planning a new stimulus package, which officials say will exceed last year's 13 trillion yen package.
At the same time, the USD/JPY pair is also influenced by the strength of the US dollar. Expectations of a less aggressive policy stance by the US Federal Reserve are bolstering the dollar, adding further challenges for the Japanese currency.
Intraday technical picture:
According to the USD/JPY 4H chart, trading continues within the sideways range between 148.80 and 150.17. A breakout, either upward or downward, could occur if new fundamental volatility catalysts emerge.
The AUD/USD pair remains under pressure from the strong US dollar, while the Australian currency is affected by China's economic policy.
Possible technical scenarios:
Judging by the unfolding situation on the daily chart, the AUD/USD pair has settled below the 0.6708 level, which opens a path for the quotes to move down to the support at 0.6633. Alternatively, a recovery to the resistance at 0.6708 and a test of its strength could be another technical scenario.
Fundamental drivers of volatility:
The Australian dollar saw a sharp decline on Wednesday due to growing skepticism around economic stimulus measures from China, which is Australia's main trading partner. Unclear statements from Chinese authorities about increasing borrowing, without specifying timing or volumes, have led to market uncertainty.
A press conference on the development of China's real estate sector is scheduled for Thursday, which could influence the future dynamics of the Australian dollar.
Additionally, the Australian currency remains under pressure from the strong US dollar. The US dollar index continues to rise, reaching two-month highs, supported by stable macroeconomic indicators and higher-than-expected inflation in the US. This has lowered expectations for aggressive policy easing by the Federal Reserve.
Intraday technical picture:
Judging by the look of things on the 4H AUD/USD chart, the most likely technical scenario is a decline within the range between 0.6633 and 0.6708.
Gold has pared recent losses and is approaching an all-time high as geopolitical risks remain a key concern.
Possible technical scenarios:
On the daily XAU/USD chart, there is an attempt by the price to consolidate above 2659.99. If successful, the precious metal may continue to rise to the target level of 2672.44. Conversely, a pullback to the support at 2600.12, marked with a dotted line, is also possible.
Fundamental drivers of volatility:
Gold is showing steady growth, driven by increased geopolitical risks and a decline in investor appetite for risky assets. Market disappointment over the lack of specific fiscal stimulus measures from China has also led traders to seek safe-haven assets like gold.
Meanwhile, weakening stock markets and lower yields on US Treasury bonds are supporting gold prices, as the metal traditionally benefits during times of uncertainty.
Additionally, a recent drop in oil prices to a two-week low has reduced inflationary pressures, giving the Federal Reserve more flexibility in rate cuts. This has strengthened the US dollar, which in turn restrains further growth in gold.
This week, market participants will pay close attention to US economic data, including retail sales and industrial production, which could influence the dynamics of the dollar and, consequently, gold, as the two often trade in inverse correlation.
Intraday technical picture:
The 4H chart of the XAU/USD pair shows that there is local resistance at the historical high of 2685.60. If the price consolidates above this level, gold could continue to rise toward 2672.44. If it retreats, a decline within the range between 2600.12 and 2685.60, marked by two dotted lines, is likely.
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